2021 (4) TMI 74 - HC - Income Tax

Reopening of assessment u/s 147 - Addition u/s 68 - reliance on information received from the Investigation Wing- Surat - HELD THAT - AO has not applied his independent mind while recording the reasons that the income has escaped assessment. The original assessment record was with the AO. The scrutiny assessment framed by the respondent has been challenged by the assessee company and the appeal is pending before the Appellate Tribunal. As the issue of alleged transaction was earlier added by the then Assessing Officer under Section 68 of the Act at the original assessment stage the same amount cannot be brought to tax once again in the reassessment proceedings. It is not the case of the revenue that the transaction as reported by the Investigating Wing Surat was distinct and has no relation with the earlier scrutiny assessment made under Section 143(3) of the Act. Thus as such there was no tangible material in the hands of the Assessing Officer for reopening of the proceedings. AO has acted mechanically based on the information received from the Investigating Wing Surat for the purpose of reopening of the assessment and any independent satisfaction to the effect that the income chargeable to tax has escaped assessment is not reflected. It is a settled principle of law that the respondent cannot justify by taking recourse to some material and information beyond the scope of the reasons recorded by the Assessing Officer prior to reopening. In the instant case the respondent has traveled beyond the scope of reasons recorded in order to justify the action of reopening. It is pertinent to note that while disposing of the objections against the reopening Assessing Officer has observed that it has credible information as received by the office pertaining to the transaction claimed as a part of turnover and same can be clearly made out from the copy of the reasons recorded provided by the office. After close scrutiny of the reasons recorded the Assessing Officer did not have refer the facts that the transactions was part of the turnover. Therefore we hold that the formation of belief entertained by the Assessing Officer seems to be vague and based on irrelevant material. Assumption of jurisdiction on the part of the Assessing Officer under Section 147 of the Act to reopen the assessment by issuing the impugned notice u/s 147 of the Act is without authority of law which renders the notice unsustainable - Decided in favour of assessee.

Issues Involved:
1. Legality of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Validity of reopening the assessment under Section 147 of the Income Tax Act, 1961.
3. Examination of whether the Assessing Officer (AO) had independent satisfaction for reopening the assessment.
4. Consideration of whether there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment.
5. Assessment of whether the transaction amounting to Rs. 20,00,055/- was already scrutinized and added in the original assessment.

Detailed Analysis:

1. Legality of the Notice Issued under Section 148 of the Income Tax Act, 1961:
The writ applicant challenged the notice dated 28.03.2019 issued by the respondent under Section 148 of the Income Tax Act, 1961, seeking to reopen the income tax assessment for the Assessment Year (A.Y.) 2012-2013. The primary contention was that the notice was patently illegal, bad in law, and without jurisdiction because the condition precedent for valid reopening under Section 147 of the Act was not satisfied.

2. Validity of Reopening the Assessment under Section 147 of the Income Tax Act, 1961:
The writ applicant argued that the impugned amount of Rs. 20,00,055/- had already been added by the Assessing Officer at the original assessment stage. The transaction with Mr. Shaileshkumar Naika was scrutinized at the original assessment stage, and the sum of share capital and share premium received from Shaileshkumar Naika was added under Section 68 of the Act. Therefore, there was no escapement of any income chargeable to tax, making the reopening unjustified.

3. Examination of Whether the Assessing Officer (AO) Had Independent Satisfaction for Reopening the Assessment:
The writ applicant contended that the Assessing Officer relied mainly on the information received from the office of DDIT (Investigation-2) for reopening the assessment. The AO did not apply his mind independently to reach the conclusion that income had escaped assessment, making the reopening based on borrowed satisfaction untenable in law.

4. Consideration of Whether There Was a Failure on the Part of the Assessee to Disclose Fully and Truly All Material Facts Necessary for Assessment:
The writ applicant argued that there was no failure to disclose fully and truly all material facts necessary for assessment. The amount of share capital and share premium received, including the sum from Mr. Shaileshkumar Naika, was added under Section 68 of the Act during the original assessment. Thus, all necessary primary evidence was disclosed at the time of scrutiny assessment, making the reopening action unjustified.

5. Assessment of Whether the Transaction Amounting to Rs. 20,00,055/- Was Already Scrutinized and Added in the Original Assessment:
The court noted that the return of income for the year under consideration was filed on 29.09.2012, declaring a total income of Rs. 58,23,400/-. The case was selected for scrutiny assessment, and after considering the necessary materials, the then Assessing Officer framed the assessment under Section 143(3) of the Act, making various additions, including Rs. 5,28,00,000/- under Section 68 of the Act, which included the sum of Rs. 20,00,055/- received from Mr. Shaileshkumar Naika. The court held that the disputed amount of Rs. 20,00,055/- had already been added by the then Assessing Officer under Section 68 of the Act, and the same amount could not be brought to tax again in the reassessment proceedings.

Conclusion:
The court concluded that the Assessing Officer acted mechanically based on the information received from the Investigating Wing, Surat, without independent satisfaction that the income chargeable to tax had escaped assessment. The formation of belief entertained by the Assessing Officer was found to be vague and based on irrelevant material. Therefore, the assumption of jurisdiction under Section 147 of the Act to reopen the assessment was without authority of law, rendering the notice unsustainable. The petition was allowed, and the impugned notice dated 28.03.2019 issued under Section 148 of the Act was quashed and set aside.

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